Obamacare Subsidies and Your Eligibility

Don't miss out on ACA subsidies

Doctor listening to a happy young girl's heartbeat
••• Photo: PeopleImages/Getty Images

Are you one of the 11.3 million Americans who is missing out on Obamacare subsidies? The Kaiser Family Foundation reported that about 55% of those who deserved these government subsidies didn't get them in 2020.

Why? They simply didn't sign up for insurance on the health insurance exchanges.

Most people think the Affordable Care Act (ACA) was designed to help only the poor. In fact, Obamacare subsidies are designed to help lower- and middle-class Americans living between 100% and 400% of the federal poverty level (FPL).

In 2020, for example, that's a family of four with an income between $26,200 and $104,800 a year. Americans in this income range are caught in the trap where they make too much for Medicaid, but not enough to afford private health plans.

Between 2019 and 2029, annual spending on these subsidies under Obamacare is expected to grow from $737 billion to $1.3 trillion. There are several criteria that determine whether you're eligible for a slice of that pie.

Make Sure You Get the Subsidy You Deserve

To qualify for a subsidy, your household income must be between 100% and 400% of the FPL. But you must also not have access to Medicaid or qualified employer-based health coverage. If you meet these criteria, you'll be eligible for a subsidy on a sliding scale based on your income.

In 2021, the American Rescue Plan temporarily allowed all households who purchase insurance through the marketplace to qualify for subsidized health insurance, even if their income exceeds 400% of the federal poverty level. In 2021 and 2022, you may be eligible for subsidies that lower the cost of your Marketplace health insurance, even if your income was too high to qualify in previous years.

The easiest way to see whether you'll get a subsidy—and how much—is to go to Healthcare.gov. You'll enter your expected adjusted gross income, and it will tell you how much of a discount you'll get. You can then sign up for Obamacare in just ​four easy steps.

The chart below shows the maximum income (at 400% poverty level) with which you can still qualify for an ACA subsidy at different household sizes in 2020. Note that these are the general federal levels, but the actual cutoff may vary by state.

Subsidy Cutoff by Household Size, 2020
Household Size 1 2 3 4 5 6
Income $51,040 $68,960 $86,880 $104,800 $122,720 $140,640
Source: U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation

You might also qualify for additional savings on your out-of-pocket costs if you choose the Silver plan. Up to a certain income level—usually around 250% of the federal poverty level—any insurance company that sells on the exchange must reduce your out-of-pocket costs to an affordable level.

How to Calculate Your Household Income

You'll need to estimate your household income for the year. For this purpose, your household consists of anyone who needs insurance, while the income is for anyone who's included on your tax return. 

The IRS counts your household as you, your spouse, and anyone you will claim as a dependant on your tax return. There are some exceptions to these general rules, so see the guidelines on HealthCare.gov for a full explanation of everyone you should include in your household.

One easy way to estimate your income is to start with your adjusted gross income from last year's tax return. For the 2019 tax year, that's line 8b on form 1040.

You'll then need to add certain other income sources, such as excluded foreign income, nontaxable Social Security benefits, and tax-exempt interest if you have them. (Most people don't.)

If you think you'll get a raise next year, change jobs, or add or subtract any dependents in your household, estimate how that will change your income.

How to Get Your Subsidy

Generally, the subsidy is added to your income tax refund as a premium tax credit. However, you can choose to use the credit in advance by applying it toward your monthly premium cost.

If your income increases during the year, then your subsidy will be reduced, making your tax bill larger as a result. In this case, if you took your credit in advance, you may have to pay back the difference.

To avoid that, update your account on the HealthCare.gov website with any significant income or household changes.

How Much of a Subsidy Will You Get?

The subsidy is based on the cost of a Silver insurance plan. That is one of the four levels of insurance on the exchange and signifies how much of your health care costs the plan pays.

  1. Bronze plans pay 60% of your health care costs, while you pay 40% overall. They have lower premiums and higher deductibles.
  2. Silver plans pay 70%, and you pay 30%. Deductibles are lower than the Bronze plans, but premiums will be higher (unless you qualify for subsidies).
  3. Gold plans pay 80%, while you pay 20%. Gold plans have a higher premium, but lower deductibles, than Bronze and Silver plans.
  4. Platinum plans pick up 90% of healthcare costs and have very high premiums and low deductibles.

All provide the same 10 essential health benefits, provide free preventive care, and comply with the other ACA regulations. The difference in coverage will show up in the premiums, deductibles, and copays.

The subsidy is based on the guarantee that you pay no more than a certain percent of your income for the second-lowest Silver plan. The percentage varies based on your income.

For example, if your income is between 100% and 133% of the FPL, subsidies will cover any premium costs above 2.06% of your annual household income. If you're at 300% to 400% of the FPL, you'll be responsible for premium costs up to 9.78% of your household income, and the government will subsidize the rest.

The American Rescue Plan changed these amounts as well. For example, in 2021, if your income is up to 200% of the FPL, your final premium will be no more than 2.0% of your income. As a result of these changes, many consumers with incomes up to 150% of the FPL may end up with $0 premiums in 2021 after tax credits.

Here's an example of how it might be calculated:

Sample Subsidy Calculation

  • Cost of the Silver plan = $9,500 a year
  • Your income = $50,000
  • 9.78% of your income: 0.0978 * $50,000 = $4,890
  • Your subsidy: $9,500 - $4,890 = $4,610

Fortunately, the HealthCare.gov exchange figures it all out for you. Your actual subsidy could be much greater or much smaller, depending on your income, the number of people in your family, your age, and whether you smoke or not.